Chapter 3
strategic position
A firm's _____ relates to its ability to create value for customers (V) while containing the cost to do so (C).
gap between the value
A firm's strategic position is likely to be strong when
will have the power to set the prices
Beans Inc. operates in a perfectly competitive agricultural industry. Classica Apparel Inc., in contrast, operates in a monopolistically competitive industry. Keeping this information in mind, which of the following statements is true?
earn low profits
Buyers are highly price sensitive when
network effects
Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls network, his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages. In addition, an existing user who gets a new user to register with Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.?
monopolistic competition
Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate?
larger output
Economies of scale are cost advantages that accrue for firms with
oligopoly
Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate?
monopoly
Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate?
switching cost
First Ledger Inc., an auditing company, replaced its existing accounting software with new accounting software from another supplier. Since the new software has different features and abilities, First Ledger Inc. has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents First Ledger Inc.'s
understand the profit
The primary objective of Porter's five forces model is to
increase in prices
What is most likely to happen when there is too much money in an economy?
perfect competition
When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?
threat of new entrants will be low
How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?
perfect competition
In which of the following industry competitive structures do selling firms have the lowest pricing power?
high entry barriers
Which of the following is a feature of an oligopolistic industry structure?
are interdependent
A key feature of an oligopoly is that the competing firms
economies of scale
Given the industry structure in the automobile business, entering the auto manufacturing industry doesn't seem advisable. Yet Tesla Motors is joining the fray. Rather than attempting to compete head-on in internal combustion engines, Tesla Motors is entering the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?
failed to change its device
In 2008, BlackBerry's market cap peaked at $75 billion. By 2015 this valuation had fallen more than 90 percent, to less than $7 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline?
demographic trends
In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
capital requirements are low
In an industry, the threat of entry is high when
five forces model
In the _____ developed by Michael Porter, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes.
it requires huge capital investment
In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because
if it has become deregulated
In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?
substitutes are available
Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry?
only achieve competitive parity
Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely
backward integration
Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through
pestel framework
The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.
legal factors
The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate?
suppliers provide differentiated products
The relative bargaining power of suppliers is high when
threat of new entrants is low
The telecom industry in the country of New Taria is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the
oligopoly
The telecommunication industry of United Canava is primarily dominated by three large firms: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in?
threat of substitutes
When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger?
family size
Which of the following do the sociocultural forces in a firm's external environment best represent?
composition of the strategic group
Which of the following external forces is a part of a firm's task environment?
require large scale production
Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers?
when the buyers industry is undifferentiated
Which of the following features about a buyer indicates that the buyer has high bargaining power?
extract industry profitability
Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE) in 2008?
many small firms
Which of the following is a characteristic of a fragmented industry?
differentiated products
Which of the following is a feature of a monopolistically competitive industry?
views competition
Which of the following is a primary feature of the five forces model?
computer hardware industry
Which of the following is an example of monopolistic competition?
consumer demand will increase
Which of the following is an implication of low interest rates?
incumbent firms will spend more
Which of the following is most likely an implication of new firms entering an industry?
stage of the business cycle
Which of the following represents an economic factor in a firm's external general environment?
many firms compete against each other and large firms against each other
Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?
stronger the model stronger the industry
Which of the following statements is not true about the five forces in Porter's competitive analysis model?
competing against each other
Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure?
buyers cost of switching to substitutes is low
Which of the following would most likely not indicate that sellers are a strong competitive force in an industry?
differentiate their product offerings
Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services?
